Welcome to Indian Share Market
updated on 21 Mar 2017
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How to earn money in stock market by following 7 steps to avoid losses in stock market
Greed, an intrinsic emotion of every human being, is mostly responsible for losses one suffers in the financial world.
The domestic market is heading for another bull run and this emotion is going to surface again.
Global investment bank Morgan Stanley believes the Sensex can touch the 33,000 mark in a base case scenario by December 2017. However, in a bull-case scenario, it can hit the 39,000 level.
Indian stock market indices BSE Sensex and NSE Nifty have made new high highs this week.
The very basic rule of earning money in stock market is to look for ways to avoid losses. If you atleast minimize your losses then your profits are earned or increased.
IF YOU ARE LOOKING TO EARN MONEY FOR SHORT TERM OR LONG TERM INVESTING THEN FOLLOW THESE 6 STEPS
1) Knowing Business
A lot of investors put money in stocks without knowing the business. Proper knowledge of a business can help investors understand how earnings can grow with any changing business dynamics.
2) Quality stock, but wrong valuation
Sometimes people invest in the stock of a quality business but at higher valuation. This may lead to losses in the short term. One should always compare the stock valuation with its peers or industry average before investing. Buying a stock at a higher valuation like high price-to-earnings ratio (P/E) can lead to losses even in a bull market.
The price-to-earning (P/E) ratio tells what the market is willing to pay now for anticipated future earnings of the company. The ratio is calculated by dividing the share price of the stock by its earnings per share (EPS). The ratio indicates whether a stock is over-valued or under-valued. Comparing a set of stocks on the parameter of PE ratio, giving investors a fair idea of how expensive or cheap a stock is on a relative basis. This ratio can be regarded as one of the important factors among many others while taking a decision to buy or sell a stock.
Stocks generally trade at lower P/E multiples in relation to historical values in a bear market, and at higher levels in a bull market. Simply put, it would be prudent for an investor to avoid shares that are trading at a significant premium to their historical PE trading range.
3) Small stock, big returns
Novice investors often get lured by market movement and try to spot penny stocks hoping for multibagger returns in coming years. A stock trading below Rs 10 is normally considered a penny stock. Market experts believe one should avoid looking for a penny stocks in a bull market, as their valuations do not look cheap. Small companies with unreliable promoter backgrounds should be completely ignored.
4) Check for Cash flow
Do not invest in a company which is not generating free cash flows. Free cash flow represents the cash that a company is able to generate after spending the money required to maintain or expand its asset base.
5) Don’t book profit in a hurry
Selling a quality stock on the smallest of negative news is one of the worst decisions an investor can take. Most investors who have made money in the stock market have worked on ‘buy’ and ‘hold’ strategy. Negative news can increase the volatility in a particular stock in the short run. However, one should not sell a stock in panic.
6) Invest in different sector stocks
Never put all your eggs in one basket; invest in a variety of stocks and asset classes. There can be prolonged periods of underperformance in a specific sector or asset class. Ensure exposure to fixed income with some portion of your portfolio.
We post stocks for investment free of cost. Visit this link
IF YOU ARE LOOKING TO EARN PROFIT AS TRADER BY TRADING DAILY OR FOR SHORT TERM THEN FOLLOW THESE 5 STEPS
1) Trading with stop losses
Day traders can trade with stop losses and this will save traders with big losses. Read how to trade with stop loss
2) Trading without margin amount
Margin amount is given by amount for day trading and it is generally 4 to 5 times based on quality of stock. If you use margin amount then you need to square off your trade before market closes irrespective of whether you are into losses or profits. But if you trade only using your own amount then you have option of taking delivery of shares if you are into losses and sell the stocks whenever the price goes up.
If you are new comer to stock market and want to try day trading then you should avoid using margin amount. We are not sure whether all brokers allow taking delivery of shares traded using day trading facility so you need to confirm this from your broker.
Learn stepwise how to trade without margin amount and make money in stock market in detail
3) Look for small profits and do multiple trades to make money in stock market. Don’t look for big profit in single trade. Learn how to do multiple trades using small profits
4) Do paper trading practice to avoid losses. If you get success in paper trading practice then you can move to actual trading with money. Learn how to start paper trading practice.
5) Very importantly if you want to trade and earn money consistently then look for daily news and trade based on news to get profits. You can also track top gainers and top losers and plan a trade for tomorrow. We post daily market direction and four stocks for trading - Visit this link to get these details.
If you have any questions then you can write to us